Some of the most unbelievable investing opportunities are in CEFs and this one's a doozy. On a day when the SPDR Healthcare ETF (NYSEARCA:XLV) is hitting an ALL-TIME high at $50.50, up over 1.2% on an overall negative day in the markets, the Gabelli Healthcare & WellnessRX fund (NYSE:GRX) is DOWN 2.35%, below $10 here at $9.99.
GRX's NAV will probably be close to $12 after today, which means you can pick up a leveraged, healthcare stock only fund, at around a -16% discount, unheard of for a fund that has the best NAV performance not just YTD at up 26.5%, but also over the last couple years as well.
So why is GRX trading down? Because a rights offering was just completed which gave existing shareholders the right to buy 1/3 of their existing share position at $9. So for investors who don't want an additional 1/3 increase in their position, assuming they put in for the rights, they can sell at close to $10 for their additional shares at a $9 cost basis.
But this is incredibly short-sighted since an investor would be a lot smarter to hold onto their GRX shares, which would maintain their proportional share of the fund, and instead hedge their added exposure by shorting the XLV or another healthcare focused ETF. If an investor doesn't currently own GRX, then you may not want to hedge at all. Nonetheless, I believe this is an incredible opportunity to own one of the best performing CEFs at a steep discount that is firing on all cylinders along with the healthcare, wellness and consumer discretionary sectors. GRX also offers about a 4% yield but this is a fund you buy for appreciation first, yield second.
This, of course, is just my opinion and it assumes that GRX will reduce its discount back to a more normalized level once investors shed their additional shares.
Disclosure: I am long GRX.